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Magna International: A Look at This Diverse Auto Part Supplier’s Profitability
Posted by: Vanina Egea (IP Logged)
Date: March 5, 2014 10:33AM
As one of the largest and most diversified auto parts supplier worldwide, Magna International Inc. (MGA) provides auto repair shops with an extremely vast array of products, including seating, roof systems, powertrain, electric vehicle systems, vehicle assembly and engineering, amongst others.
Although this sort of diversification has earned the company some profitable years, many analysts consider it to be unsustainable in the long term, as management is forced to spread its resources throughout multiple product development groups. Also, the prior bankruptcy cases of fellow competitors Delphi Automotive PLC (DLPH) and Visteon Corp (VC), which had a similarly diverse business model, should be a warning regarding this firm’s balance sheet.
However, the company’s high returns of 26.8% on invested capital, as well as an outstanding EBITDA growth of 120.60% year-over-year, have caught my attention and left me wondering if these metrics will continue looking forward. The company will also be reporting its latest quarter earnings on Monday. Therefore, in the article below, I will analyze Magna's past profitability, capital, and operating efficiency, in addition to looking at which institutional investors have recently bought the firm’s stock in the last quarter. Based on this information, we will get an understanding of the company´s revenues, operating metrics and quality of earnings.
I also think profits could be obtained by limiting the product portfolio, thereby redirecting resources to technological innovation, which would put the company ahead of its competitors. Nonetheless, there is no denying that Magna is an interesting investment option, especially for the long term, given the volatility of its balance sheet. The fact that the stock is currently trading at a price discount of 10% relative to the industry median of 15.60x, should be attractive for investors seeking to buy company shares.
Disclosure: Patricio Kehoe holds no position in any stocks mentioned
Guru Discussed: Joel Greenblatt: Current Portfolio, Stock Picks
Stocks Discussed: MGA, DLPH, VC,
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